From: Anonymous

I'm about to form a trust in which to hold my (future) properties.
However I am not fully across how they work. This may sound like a silly question but how do you purchase a property using a trust. I beleive that the property would be held in the individual's name on behalf of the trust. If this is the case do you just inform the conveyancer when you are purchasing? Does the bank need to be informed as well? and does it affect borrowing capacity??

And what would happen if the individual dies and the house is in their name?


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Reply: 1
From: Sim' Hampel

I believe that the name on the title is the name of the trustee of the trust. ie. "Joe Bloggs as Trustee for XXX trust" or something like that. Someone who has actually done this (or your accountant) would be able to confirm.

As for contracts and so on, the magic words (I believe) are "and/or nominee", which allows you to assign the contract to a third party (ie. a trust) at settlement.

I recommend that you purchase a book called "Family Trusts" by N.E. Renton published by Wrightbooks. Has a very good coverage of trusts in Australia and how they work.

As always the information here is only my opinion (and may actually be incorrect), as I am not qualified to give this advice. You must speak to a qualified person such as an accountant for advice on these matters.

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Reply: 2
From: Paul Zagoridis

Trusts are not a legal person, they cannot hold property in their own right. The trustee holds property for the beneficiaries.

Renton's book is quite good on the background. However like most of his writing he is too "by-the-book" for my liking. He even wrote a book on Negative Gearing!

Trusts are excellent for privacy. Nobody needs to know that the property is owned by the trustee AS TRUSTEE FOR anything. Talk to your advisors about disclosing the beneficial ownership on deeds and certificates.

Privacy, asset protection, tax and estate planning are the main reasons for Discretionary Trusts. A beneficiary does not own the asset.

Never have a natural person as the trustee. Especially never a beneficiary. If the corporate trustee is sued you can wind it up and appoint another. Hard to do that to a parent, relative or friend. Any assets in the trustee are transferred to the new trustee. This may have Stamp Duty and CGT implications.

Trusts do complicate you loan applications. Some banks wont touch them.

There is argument against holding an appreciating asset THAT WILL EVENTUALLY BE SOLD in a trust or company. I'll search the archives for a debate and post the question if I can't find it.

Also, the ATO has been trying to close perceived tax advantages of family trusts for years. It looked like they'd succeeded this year with taxing trusts as corporate entities from 1 July 2001. But that has been delayed for a year and may never see light of day. So NEVER structure something purely for tax advantages. The government can and will change the rules too easily.
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Reply: 2.1
From: Yuch .

Looks like ATO is determined to get rid of the tax benefits for trusts.

Just wondering if you peoples are looking into other alternatives...

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Trusts & ATO

Reply: 2.1.1
From: Paul Zagoridis

This is a big difference between the ATO wanting it and it happening. Most family farms in the country are held in Family Trusts. So it's not easy to tax them unfairly.

The latest changes were scrapped because they penalised discretionary trusts to the point of double taxation.

Trust beneficiaries pay tax. No income is "destroyed" or "hidden". 100% of income is distributed and tax paid on it. If a trust fails to distribute income it gets taxed at the highest rate on every dollar.
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Trusts & ATO

From: Robert Forward

And when the pollies have trusts themselves it is going to very hard to get the changes in tax for trusts through.

They, like us, certainly don't want to be paying anymore then neccessary.

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Trusts & ATO

From: Sim' Hampel

On 4/18/01 2:50:00 PM, Paul Zagoridis wrote:
>The latest changes were
>scrapped because they
>penalised discretionary trusts
>to the point of double
>Trust beneficiaries pay tax.
>No income is "destroyed" or
>"hidden". 100% of income is
>distributed and tax paid on
>it. If a trust fails to
>distribute income it gets
>taxed at the highest rate on
>every dollar.

Hangon a minute Paul, I thought there were provisions in the proposed tax rules that allowed discretionary trusts to elect not to make a distribution and instead pay the company tax rate (soon to be 30%) ?

That allows you to effectively reinvest all income back into the trust at a relatively low tax rate, which is especially good if all beneficiaries are currently on the top marginal tax rate.

I was actually looking forward to that rule, as it would suit our circumstances very well.

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Reply: 1.1
From: Dale Gatherum-Goss

Trusts started in the days of the crusades about a thousand years ago. In those days, if the knights rode off to battle and died, his assets were handed over to the king. Naturally, the wives were not too impressed at all.

So, they spoke to the monks, who were the only educated people at the time and they came up with the idea of an entity holding the assets in trust for the knight and his family. So, if the knight died, he did not actually own anything and so the assets were kept in the family and not handed over to the crown.

A thousand years later, the rules have not changed that much and a trust is till a wonderful way to protect assets from attack.

The trustee makes decisions on behalf of the trust.
The settlor is the person who puts in a few dollars to create the trust for a specified individual's benefit. They are never seen or heard from again.
There are usually 3 classes of beneficiary. The first is a primary or specified beneficiary. These are the people named in the trust deed to specifically benefit from the trust's assets. The second class is the family of the specified beneficiaries and the third class is any other trust or company owned by the specified beneficiary.

Trusts provide great asset protection and wonderful flexibility with regard to planning your affairs.

I have more information on trusts if anyone would like it. Just ask.

Bye the way, as mentioned earlier, the new tax rules are on hold (read scrapped with an election coming) and trusts are able to use the same rules as individuals in eliminating 50% of capital gains on assets held for more than 12 months.

I hope that this helps

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Reply: 1.1.1
From: Frode Egeland

Great info! Thanks Dale!

Do you, or does anyone else, have a good accountant (in Sydney) that you'd be willing to share? :)

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Trusts & ATO

From: Waverly Bay

Sim, irrespective of the new trust rules coming into effect, it is still possible for profits derived by a trustee to be effectively "parked"/"accumulated" and taxed at the corporate rate.

Say a property is owned by "Company A as trustee for the XXX Family Trust". It is possible for Company A to also be a beneficiary of this trust which can accept distribution. This is because "Company A as trustee for the XXX Family Trust" and "Company A" are two separate legal entities. The other more cumbersome way is to set up another company as a beneficiary...

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Reply: 2.1.2
From: Dale Gatherum-Goss


I am quite confident that Trusts will not go. The legal precedents behind them, the fact that most of our politicians have them (I have prepared tax returns for a couple!!, and the disastrous effect that the changes would create are testimony to my beliefs.

However, even the "experts" who commented on the proposed tax laws came to the conclusion that the trust was still a good thing.

I still use my trust and will continue to do so.

Bye the way, did you know that nearly all doctors, solicitors and accountants use trusts to remove assets from attack and reduce tax?

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